Two of Greece's biggest banks face nationalization after failing to attract private investment and a surprise move by the state to suspend their merger deal.

Shares of Greek lenders National Bank and rival Eurobank plunged by as much as 30 percent on Monday after they confirmed their merger deal had been halted and they are unlikely to raise the private capital they need to stay out of state hands.

National bought 84.3 percent of Eurobank via a share swap in February, with a view to absorbing it as part of broader consolidation in the banking industry to cope with fallout from Greece's debt crisis and deep recession.

But the deal raised the concerns of the "troika" of the European Commission, European Central Bank and International Monetary Fund that it would create a bank too big relative to Greece's economy and make it difficult to sell in future.

"Their admission that they are unlikely to raise the required 10 percent from private investors is quite negative (as) their shareholders may become owners of a nationalized bank," said Maria Kanellopoulou, an analyst at Euroxx Securities.

Greek government officials have said deposits in the banks will be unaffected by the deal's suspension, in a bid to reassure jittery Greeks after a bailout to rescue Cyprus included slapping a levy on bank deposits.

Together,the two banks need 15.6 billion euros ($20.3 billion) in fresh capital to boost their solvency ratios to levels set by the central bank after incurring losses from sovereign debt write downs and impaired loans.

Both NBG and Eurobank shares fell to all-time lows and hit their daily volatility limit, pushing the Athens bourse's banking index down 17.4 percent. They later recovered, with Eurobank rising 10 percent while National Bank recouped losses but was down 9 percent.

"The market's reaction reflects ownership dilution worries and uncertainty on what the future holds for both banks," said Theodore Krintas, head of wealth management at Attica Bank.

Recapitalization Fears

Under a recapitalization plan agreed with Greece's international lenders, the Hellenic Financial Stability Fund (HFSF), a state bank support fund, will supply most of the capital banks need in exchange for new shares and contingent convertible bonds.

Both have told the central bank they are unlikely to meet this requirement, a finance ministry official said on Sunday, meaning they may fall under the HFSF's control. That would mean about 40 percent Greece's of banking sector will end up controlled by the state, while the other two major Greek lenders remain privately run.

National Bank's 84.3 percent stake in Eurobank could be diluted down to a low single digit holding if the HFSF pumps in all the capital.

Both banks' boards will convene on Tuesday to decide on their recapitalization, the two lenders said, confirming what bankers told Reuters a day earlier, that the two would be recapitalized separately.

"The relevant regulatory authorities, with the consent of the management of both banks,have decided that NBG and Eurobank will be independently recapitalization full. The merger process of the two banks is being suspended,"

Eurobank said Rival lenders Alpha and Piraeus Bank have already announced share offerings, aiming to meet the required 10 percent private-sector take up.

Whether NBG and Eurobank will be eventually integrated or run as stand-alone entities will be decided by the HFSF fund after their recapitalization is completed. If the plan is dropped, Piraeus Bank will emerge as the country's biggest bank.